The Employee Retention Credit (ERC) offered relief to certain employers affected by COVID-19 in 2020, in the form of a fully refundable federal payroll tax credit. It was later extended to all four quarters of 2021, with certain changes – most notably the fact that Paycheck Protection Program (PPP) loan recipients can now claim
these credits, subject to certain restrictions.
The ERC is available to large and small churches (and tax-exempt organizations generally) for the first two calendar quarters of 2021 if they have either:
Suffered a decline in gross receipts of more than 20% when comparing either (i) the applicable calendar quarter of 2021 to the same quarter in 2019 or (ii) the calendar quarter immediately preceding the applicable calendar quarter of 2021 to the same quarter in 2019,
Had to fully or partially suspend operations “due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease.”
Applicable wages are capped at $10,000 per employee per calendar quarter. Credit can be taken for 70% of the wages paid, meaning a maximum credit of $7,000 per employee is available to eligible employers per calendar quarter, for a total of $14,000 in 2021.
A qualifying local church has a non-clergy employee that was paid an annual salary of $40,000 (i.e., $10,000 per calendar quarter) in 2020. The church should have received an ERC of $5,000 (the maximum for the year) for that employee for 2020. The employee will be paid the same annual salary in 2021. Assuming the church meets the applicable eligibility requirements in 2021, it could anticipate receiving a total of $14,000 in ERC for the first two quarters of 2021.
Assume the same facts as Example 1, except the local church received a PPP loan on July 1, 2020. The church exhausted the loan proceeds in paying for all eligible employee costs it incurred in the third quarter of 2020—no loan proceeds were remaining to pay for eligible costs in the last quarter of 2020. The church then applied for the forgiveness of its PPP loan, which was granted. Because the PPP loan was not used for the $10,000 paid to the employee in the last quarter of 2020, the church would still be able to receive an ERC of $5,000 for that employee for 2020, as well as the $14,000 credit for the first two quarters of 2021.
For more details or to learn about ERC eligibility, schedule a 30-minute appointment to evaluate if your church could qualify for the updated Employee Retention Credit. If the church enrolls in our ERC services, the $75 evaluation fee would be applied to the service cost.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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